) and SAP (
) have traditionally concentrated their efforts on developing
on-premise software, and are not considered big
Software-as-a-Service (SaaS) players. SaaS works according to the
concept that enterprises should be able to license only the amount
of software required, versus the traditional way of procuring a
license per device. According to market research firm IDC, the
SaaS market could increase from $13 billion in 2009 to around $40
billion by 2014, a rapid annual growth rate of 25%.
Although Oracle is not a large player in this space, it does not
mean that Oracle does not benefit from the surging expansion of the
SaaS market. No doubt cloud computing players like Amazon (
), Salesforce.com (
), Google (
) and Microsoft (MSFT) are the direct beneficiaries of
this growth, as they have the largest presence in this market.
Oracle's benefit, however, is more indirect.
We maintain a
$38.16 price estimate for Oracle stock
, implying a 20% premium to market price.
How Oracle Benefits from SaaS Growth?
Applications act as a front end interface for a user, while the
database is where the data is actually stored. Middleware is the
link that connects applications to the database. Hence,
applications, middleware and database software all go
SaaS software applications such as customer relationship
) and enterprise resource planning (ERP) are deployed alongside
database and middleware software. These applications require both
servers, on which they are hosted, and storage hardware, for
backing up of the data.
This is where Oracle's Exadata line of servers enters the
picture. The Exadata servers are faster machines that provide an
infrastructure for SaaS players to host their applications. We've
previously examined the outlook for Exadata in a prior note titled
Oracle's Exadata & Software Give Oracle 20%
In short, Oracle becomes the indirect beneficiary of SaaS
applications market growth since these applications require
database and middleware software to be deployed on servers.
Notably, Oracle is already the dominant player in the database
software market with a share of around 50%.
See our full analysis and $38.16 price
estimate for Oracle
Through Exadata, Oracle has also started to become a meaningful
player in the hardware market following its acquisition of Sun
Microsystems in early 2010.